It’s common for one lawyer to do the estate planning documents for a couple and perhaps even more family members. But if the lawyer represents someone other than the testator (the person writing the will), trouble can result. Say the law[yer] represents both the testator and a second spouse—children from a first marriage could cry foul and say that the lawyer was doing the secret bidding of the second spouse and not what their own deceased mom or dad wanted.

Carefully defining who is the client is one of the most important tasks of any estate planning attorney.

It may seem simple at first, but many times circumstances change during the course of the representation – or in the life of the family – making it difficult to ascertain who truly must be represented by the attorney.

Consider the following circumstance: Mother and Father are in their late 70’s, but have full mental capacity to execute legal documents. Because they are living on fixed income, Oldest Child pays the attorney for an estate plan.

Mom and Dad are fine with Oldest Child serving as Trustee and Executor. However, once Mom and Dad begin to show signs of dementia, Younger Siblings challenge the decision to have Oldest Child serve as Trustee.

It is common in many cases for the drafting attorney to continue representing Trustee, since that was Mom and Dad’s wishes. However, if there is a conflict between the children as Beneficiaries, the drafting attorney may become disqualified due to the Conflict of Interest.

Also common is the Conflict of Interest that arises from blended families.

Husband and Wife are married for 20 years before Wife dies. Husband remarries Second Wife and they remain married for another 10 years before Husband dies.

Husband had sought to leave his part of the Estate to his children, but wanted Second Wife to be his Trustee and Executor.

In this case, the original drafting attorney will find it difficult to avoid a Conflict of Interest, because the needs of his Clients (Husband and Second Wife) are very different.

If not managed carefully, these types of representations can lead to family friction and potentially litigation.

Careful determination of “who is the client”, combined with the appropriate Conflict Waivers, are required if the client seeks joint representation in a case like this.

Better yet, each spouse should ideally have their own independent counsel, to avoid litigation down the road.

This sounds ridiculous, but make sure you own what you’re planning to leave to your heirs…With jointly owned property, the joint owner gets it…If you put your vacation condo in corporate name and the shares are to go into a trust, it doesn’t matter that you say in your will that you want your daughter to get it.

Suppose you have a house, $2 million in investments and a coveted family business you want your oldest child to have even though you think everybody else will be ticked off. Consider entering into a contract while you’re alive selling the business to that child, instead of including it as a specific bequest in your will or trust.

While the basic advice in Part 4 is sound, it does not come close to eliminating the sources of family friction as it relates to the family business.

While it is harder to contest the lifetime sale of a business than it is to contest a bequest or devise – the real challenge is how to equalize the inheritance to all children, whether they work in the family business or not.

However, when it comes to a family business, even isn’t equal, and equal isn’t even.

If one child has been working in the family business, while others have been pursuing their own passions, it is only right to hand the business over to the child who has invested their life in the long term success of the family business.

However, if the family business is the majority of the family’s net worth, then how can the other children receive an equal inheritance?

If you loan money to one of several children, it’s best to have it in writing whether the loan is to be forgiven or repaid at your death. If you make a gift to one of several children, say $50,000 as a down-payment on a house, you can amend your will or trust to say that the gift is an “advancement”…Sometimes addressing this clarifies things, but sometimes the way it’s accounted for backfires and prompts litigation.

Family loans and advances are one of the stickiest areas in Estate Planning.

They can almost do more harm than good, especially if family members fail to follow the rules set forth in the Internal Revenue Code.

To begin with, loans between family members are presumed to be Gifts, not Loans, unless the family members can prove that the Loan was made by an “arms-length” transaction.

In short, there should be some documentation of the loan, and – more importantly from the perspective of the IRS – appropriate interest must be charged.

What constitutes appropriate interest?

Well the IRS – in it’s infinite wisdom – will apply the Applicable Federal Rate to the loan, if you fail to assign a different rate.

More importantly, if you choose to not charge interest – the IRS may attribute interest to the transaction anyhow (imputed interest) which can lead to negative tax consequences for failure to pay the imputed interest.

As part of your Living Trust – you should make reference to the loan, the duration of the loan, the rate of interest charged, and any other identifying information (i.e. documentation).

The note (or evidence of the loan) should be assigned to the Living Trust.

If you decide to allow a Child or Beneficiary’s share of the Estate to be reduced in lieu of repayment – you must factor in the applicable interest rate over the term of the loan (from the date the money was lent until repayment).

While inter-family loans are extremely common – the rules surrounding them are complex, and must be followed to avoid negative tax consequences or litigation.

Most wills and trusts say to “divide my tangible personal property among my children as they shall agree.” Talk about a recipe for disaster…

…List specific items that you want to go to certain heirs in your will or trust. Better yet, if the items haven’t appreciated in value or your kids plan to keep the pieces in the family, give them away while you’re alive…To make the gift totally transparent, [you can draw] up “bills of sale.”

You can avoid estate litigation most of the time by treating people with the same degree of relationship to you equally. Three kids get one-third each. Trouble brews when you cut out kids in favor of grandchildren or favor one family line, giving more to the child who bore you more grandchildren.

Decisions get more complicated with multiple marriages. Should you treat the children from a second or third marriage the same as your son from your first marriage, putting a 40-year-old on the same footing as a 20-year-old, who isn’t yet launched? What about stepchildren? The default rule (that’s what happens if you die without a will or the will is thrown out) treats stepchildren the same as full children.

Now let’s look at one of the very best ways to leverage the value of both Life Insurance and Charitable Giving:

Using Life Insurance in a Wealth Replacement Trust

Charitable Giving is one of the best ways for families to deal with Estate Tax issues, as well as to leave a positive legacy for one’s family and community.

The Charitable Remainder Trust (CRT) offers three levels of potential Tax savings: (1) Deferral of Capital Gains Tax; (2) Immediate Income Tax deduction; and (3) Estate Tax credit for amounts passing to charity at the end of the Trust.

The Charitable Lead Trust (CLT) allows a Donor to transfer property to their Children at a greatly reduced Gift Tax level, since it receives a credit for amounts going to Charity during the term of the Trust.

A Private Family Foundation or Donor Advised Fund allows Family members to direct donations to qualified recipient organizations over many years.

In addition, a Private Foundation or Donor Advised Fund can be set up to receive the Charitable Remainder at the end of the Charitable Remainder Trust, and it can also receive the annual Charitable Gift from the Charitable Lead Trust.

However, each of these techniques can have a serious drawback.

For the Charitable Remainder Trust, what happens if the Donor dies early in the CRT’s term, leaving more money to the Charity than anticipated, and depriving the family of the use of those assets?

With the Charitable Lead Trust, what happens when the family can not wait for 10, 20 or 30 years to use the money that is locked up into the CLT?

Families that are concerned about these outcomes will often use a Wealth Replacement Trust (also known as an Irrevocable Life Insurance Trust) to replace assets passing to Charity.

If the Donor of a Charitable Remainder Trust dies early, and the CRT pays more to charity than anticipated, the Wealth Replacement Trust will replace those assets with Life Insurance death benefit proceeds.

If a Charitable Lead Trust is set up for a length term of years after the Donor dies (called a Testamentary Charitable Lead Trust), the Donor can also set up a Wealth Replacement Trust with an equal amount that will pay to the beneficiaries immediately upon his passing.

That way, the Beneficiaries will have immediate use of the Life Insurance proceeds upon the Donor’s death, and also will receive the balance of the Charitable Lead Trust at the end of it’s term of years.

In both cases, Life Insurance is used in a Wealth Replacement Trust to enhance the benefits of Charitable Giving, as well as mitigating the downside of the Charitable techniques.